CONSOL Energy Inc.'s decision to sell its West Virginia coal mines to Ohio-based Murray Energy will benefit the future prospects of both companies, two West Virginia University experts said Tuesday.
Murray Energy will pay $850 million in cash and take on about $2.4 billion in liabilities to acquire the mines that make up CONSOL's Consolidation Coal Co. subsidiary. Factoring in some additional payments, the deal values the mines at roughly $3.5 billion.
The deal will nearly double Murray's annual production and triple its amount of coal reserves. Meanwhile, shedding the coal subsidiary will allow CONSOL to focus on better growth opportunities in the natural gas sector.
"CONSOL is switching their strategic focus to natural gas, and this will allow them to up their natural gas production," said John Deskins, director of the Bureau of Business and Economics Research at WVU.
CONSOL President Nick DeIuliis said in a Monday conference call that the deal would allow CONSOL to go from a coal company with natural gas exploration and production to a natural gas exploration and production company that now has coal.
CONSOL Chairman and Chief Executive Officer J. Brett Harvey said West Virginia "will continue to play an important role" in the company's future gas exploration and production growth strategy.
"We have a sizeable Marcellus shale footprint in West Virginia, which will take a significant amount of labor and capital to develop," Harvey said.
In an earnings report Tuesday, CONSOL said its Marcellus gas production increased 72 percent during the third quarter compared with the third quarter of 2012. The company expects its natural gas growth to continue at a rate of about 30 percent in 2015 and 2016.
Deskins said it was a good time for the company to make the deal. He said while the longwall mines were producing a steady stream of income, their growth had matured.
The opportunity now lies with natural gas.
"CONSOL wants to capitalize on the natural gas boom," Deskins said. "Because they are mature, it's a good time to sell the mines, get the cash and invest that into natural gas."